GAO Report on Quality of Audits

On October 25th the General Accountability Office (GAO) released a report entitled Actions Needed to Address Persistent Audit Quality Problems in response to concerns over the quality of single audits. Single audits are annual audits entities that expend at least $500,000 in federal funds are required to obtain. The audits are conducted by independent non-federal auditors and are generally governed by OMB Circular A-133.

The GAO report analyzes a June 2007 study by the President’s Council on Integrity and Efficiency (PCIE) as part of the National Single Audit Sampling Project, coordinated by the U.S. Department of Education’s Office of Inspector General. Both the PCIE study and the GAO report indicate there are major problems with the quality of single audits and expressed concerns that audits are not being conducted in accordance with professional standards and requirements. In fact, 51% of the audit reports studied by the PCIE had deficiencies severe enough to be classified as having “limited reliability” or as being “unreliable.”

One of the most common deficiencies in single audits is the failure to adequately test for internal controls over federal compliance requirements. This report, together with recent changes to OMB Circular A-133 (reported in the June 29th Federal Update) that strengthen the requirement for single auditors to report internal control findings, is likely to lead to an even greater focus on grantee and subgrantee control over compliance with federal requirements.

The PCIE made three recommendations to address single audit quality: (1) revise and improve single audit standards, criteria, and guidance; (2) establish minimum continuing professional education (CPE) as a prerequisite for auditors to be eligible to conduct and continue to perform single audits; and (3) review and enhance disciplinary processes to address unacceptable audits and for not meeting training and CPE requirements. The GAO generally agreed with these recommendations, but recommended Congress study whether the recommendations are feasible (especially with regard to the CPE requirements) before making any changes to single audit standards. The GAO also recommended Congress consider strengthening the oversight by cognizant federal agencies, meaning grantees and subgrantees can expect even greater scrutiny of their audit reports by the U.S. Department of Education.

The GAO report is available at: http://www.gao.gov/new.items/d08213t.pdf, and the PCIE study is available at: http://www.ignet.gov/pande/audit/NatSamProjRptFINAL2.pdf.

Author: SLK